“Defensive” Sectors
Continue to Improve

by | Dec 14, 2021

Key Points

  • Food & Staples Retailing Is on the Verge of New Highs
  • “Defensive” Sectors are Getting Stronger on an Absolute and Relative Basis
  • Technology is Holding On, Discretionary Is Fading
  • Cyclicals are Stuck Below Resistance after “False Moves”
  • Health Care Is a Sector to Watch

Chart in Focus

One theme that has become clearer this week is that “defensive” groups are making a run. Drilling deeper into the Consumer Staples sector, we can see that the S&P 500 Food & Staples Retailing Index is on the cusp of a new high after holding support at the rising 50-day moving average. Above 650, odds favor a continuation to the upside.  

The relative trend is also improving, trading above the 50-day moving average and on the verge of  breaking from the consolidation.

Visiting the Sector Relatives

All the charts below look at the sectors of the S&P 500 on an absolute basis (top panel) and relative to the S&P 500 (bottom panel) to get a sense of the leaders, laggards, and shifts in trends. We include the 50-day moving average on each.

Information Technology

The Technology sector traded to a new high yesterday before reversing to close near the day’s low. From a trend perspective, the group remains bullish. The first support is at the 2,900 level, and stronger support is near 2,810. The rising 50-day moving average sits between these two support levels, solidifying this zone as important should a pullback deepen.

Relative to the S&P 500

The relative trend also remains bullish with the rising 50-day moving average in the middle of a clearly defined support zone. Holding above this support zone keeps Technology in a leadership position.

Consumer Discretionary

The Consumer Discretionary sector is testing the rising 50-day moving average as it sits just above short-term price support at the 1,560 level. Losing support sets the stage for a swift move down to the summer consolidation zone around 1,450.

Relative to the S&P 500

On a relative basis, Discretionary has broken price and moving average support. If a rebound does not begin in short order, the group is at risk of losing its leadership position.  

Communication Services

The Communication Services sector is fighting hard to hold support near the 265 level but remains below the 50-day moving average. For now, the trend is neutral, and we want to see the moving average retaken to have confidence that the bulls are taking control.

Relative to the S&P 500

Relative to the S&P 500, the group remains in a downtrend as it makes its way toward the low from early 2021. A lot of work that needs to be done before this sector becomes compelling on a relative basis.

Materials

Materials found support at the rising 50-day moving average and are now testing the underside of the breakout level after failing to hold in November. Until this level is overcome, the trend is neutral, and we are content to let the bulls and the bears fight to establish a clearer trend.

Relative to the S&P 500

On a relative basis, Materials remain neutral, holding the 50-day moving average below price-based resistance.

Financials

Financials remain below the 50-day moving average and resistance at the breakout level that failed to hold as support. We could make the case that the current consolidation has been playing out with a series of higher lows, but until the moving average and resistance are overcome, we are in the neutral camp on this absolute trend.

Relative to the S&P 500

The relative trend remains below the 50-day moving average as it tests important support. A breakdown points to a new trend of underperformance.

Industrials

The Industrial sector also remains below the breakout level as it tries to hold the 50-day moving average. As with the other cyclical sectors, the trend is best described as neutral on an absolute basis.

Relative to the S&P 500

However, the relative trend remains bearish. The ratio is trading below resistance and the declining 50-day moving average. These are levels that must be overcome before we can make the case that the bearish trend is reversing.

Energy

The Energy sector continues to battle to regain the breakout level and the 50-day moving average. The trend here remains neutral until these levels are overcome.

Relative to the S&P 500

The relative trend remains below resistance and the 50-day moving average. For now, the trend is neutral, but the bias is to the downside.

Consumer Staples

Last week we wrote that odds favored a run to new highs for Consumer Staples, and they wasted little time in making that run. Support is near the 756 level, above the rising 50-day moving average, and the trend is bullish above that support level.

Relative to the S&P 500

The relative trend is reversing higher after retaking the 50-day moving average as this defensive group has exhibited a solid improvement to its relative trend.

Real Estate

The Real Estate sector also traded to new highs after holding important support and the 50-day moving average. Above the breakout level, the path of least resistance is to the upside.

Relative to the S&P 500

On a relative basis, the group is moving higher after reversing to retake the 50-day moving average. Above the moving average, the June highs are in play.

Utilities

Utilities are another defensive sector that has traded to a new high in the past week. The 50-day moving average has made the turn to the upside once again as well. The 345 level remains important support, and the bulls are in control above this mark.

Relative to the S&P 500

The relative trend continues to turn to the upside and remains above the 50-day moving average. More work that needs to be done, but the trend is certainly improving in the near term.

Health Care

Health Care has broken above short-term resistance after staging a rebound from the 50-day moving average, which is now turning higher. The group is now in a position to attack the summer highs, an event that is probable if the 1,550 level holds.

Relative to the S&P 500

On a relative basis, Health Care has moved above the declining 50-day moving average as it works to reverse a downtrend by breaking above an interim high.

Take-Aways:

The S&P 500 is trading near record levels, but it is interesting to note that the “defensive” sectors have been exhibiting the most strength of late. This is arguably not the type of leadership that equity bulls want to see. Technology is holding on to a leadership position, but Discretionary is breaking down. The “cyclical” groups have rallied in the near term, but they must overcome resistance before we can make the case that bullish trends are reasserting.

Disclosure: This information is prepared for general information only and should not be considered as individual investment advice nor as a solicitation to buy or offer to sell any securities. This material does not constitute any representation as to the suitability or appropriateness of any investment advisory program or security. Please visit our FULL DISCLOSURE page.